Story Highlights

If you're a Baby Boomer -- born between 1946 and 1964 -- going to the doctor is a lot like hauling a 1973 Vega into the shop. There's that grinding noise when you make a right turn. The stall when you try to remember your mother-in-law's birthday. The shakes from those midnight refuelings with pepperoni pizza.

Someday, all of these things might be treatable, which is one reason why health and biotechnology funds have fared so well this year. And, because there are so many Boomers and such promising medical research, biotech funds may continue to produce healthy returns in 2013.

Mutual funds have produced vigorous returns this year. The average diversified stock fund has gained about 13% through Wednesday, and 5% in the third quarter alone. The top-performing fund, the tiny and obscure Velocity Shares Daily Inverse VIX exchange-traded note, has soared 149% so far this year. (Fund name translation: It's a fund that moves in the opposite direction of the VIX index, a measure of volatility.)

Relatively few types of funds, however, have beaten the Standard & Poor's 500-stock index. International real estate funds, buoyed by a rebound in commercial buildings, were the top-performing category, with a 28% gain, according to Lipper, which tracks the funds. Funds that chase stocks of companies with rapid earnings growth beat out those that looked for unloved bargains.

Not surprisingly, funds that bet on a declining market took the biggest hits, falling about 21%. Funds that rise and fall with energy prices also lagged, mainly because of low natural gas prices.

Health and biotech funds, however, have produced robust gains this year, rising an average 22.4%. In fact, the funds have survived the entire bear/bull cycle fairly well. They're up 41% since the S&P 500's October 2007 peak, vs. a 6.7% loss for the index itself.

A reason: Big pharmaceutical companies. The SPDR S&P Pharmaceuticals ETF (ticker: XPH), an index fund that follows the sector, has gained 17% this year. One reason for the attraction: In a time when bank CD yields are smaller than a homeopathic pill, many big drug companies pay big dividends.

Pfizer (PFE), for example, has a dividend yield of 3.46%, according to Morningstar, the Chicago fund trackers. The stock is up 17.8% this year, including dividends. Similarly, Merck (MRK), which carries a 3.73% dividend yield, has gained 22.7%.

Big pharmaceutical companies have taken a bad rap for some time because of patent expirations. Some very big, very profitable drugs, such as Lipitor, can now be produced in much lower-cost -- and lower-profit -- generic forms. But, says Rajiv Kaul, manager of Fidelity Select Biotechnology fund (FBIOX), that's old news. The cascade of expirations has largely subsided.

What's new in health care is in the biotechnology field, where the convergence of the mapping of the human genome and the ability of computers to handle vast amounts of data is offering hope for long-term cures for cancer and other diseases.

Essentially, new technology enables scientists to view how a tumor grows from the inside, rather than from the outside. The traditional route for classifying cancers was identifying the part of the body from which it starts. Thanks to genetic mapping, scientists are able to take a different approach. "We're getting more insight into what causes a cancer to grow," Kaul says.

Those insights, in turn, can lead to treatments that are more closely targeted to the tumor and cause less damage to the patient. Previously, treatments were based more on the hope that a drug would help reduce tumors. "We were driving in the dark," Kaul says.

Ultimately, the hope is for drugs that could make diseases such as Hepatitis C and cancer long-term treatable conditions, much as HIV is now. And, as the cost of genetic testing goes down, the availability of those treatments could rise.

Biotech investing is far riskier than investing in big pharmaceutical companies. You could, in fact, argue that big pharma is the coward's way to invest in biotech: After all, the big drug companies often buy smaller biotech companies with promising products.

The drawback is that the purchase of one or two good companies may not have a huge impact on a big drug company's bottom line, at least not for a long time. And companies often overpay for acquisitions. In addition, many of the top scientists in a biotech firm that has been acquired will eventually leave and start new biotech companies.

So your best bet is probably to invest in a fund that invests throughout the health care sector. The five best this year are in the chart.

The biotech revolution may not mean that Boomers will be playing Frisbee and listening to classic rock stations in 2075. This is not a bad thing. But biotechnology and health sciences, in general, could be on the cusp of a revolution comparable to the discovery of antibiotics -- and that's a very good thing.